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Tuesday, September 29, 2015

Surely You Must Ensure to Insure

Ron writes:

Insurance is a topic many collectors shy away from because it involves adding and words you have to look up on dictionary.com. Others may harbor objections that are more idiosyncratic. Personally, whenever I think of insurance, I think of Fred MacMurray in Double Indemnity. I start wondering: "If I need to make a claim, how hard will it be to convince Edward G. Robinson that it's not part of some complicated ruse involving a dame, a train, and an ankle bracelet?" So when our friend Ross Barr offered to contribute a blog post to the SWCA, I asked him to tackle the subject -- and to make it seem non-threatening. Here's guest blogger Ross to ensure that you are assured in your surety of the finer points of insurance.

Ross writes:

Vintage Star Wars collectors can be strange, and they are often illogical. I know, I know; this is news to no one. Take me for example. Although I can't tell you how much I have spent on my collection over the years (shhhhh….my wife may be reading this), take my word for it when I tell you that a non-collector might consider it excessive. Despite the money I have poured into my beloved collection, I have spent very little on display cabinets and such – maybe a few hundred bucks at most – because, among other reasons, I want to "save money." Right...

In the same vein, I know more than a few collectors whose collections have a value that would make Bill Gates blush – well...probably not Bill Gates...but at least some lesser known and poorer person – that nonetheless haven't purchased insurance to cover their collections. You might be thinking: "Are they insane?! Why would someone with a collection worth several hundred dollars, or few thousand dollars, or tens of thousands, or...gulp...hundreds of thousands of dollars not spent a few hundred bucks a year to insure against fire, theft, earthquake, acts of terror, clumsy children, jealous girlfriends, rabid dogs, intergalactic space battles, and their own drunken mishaps?" I have to tell you, I am not sure I understand it either.

While, as I said before, it's not a priority to me to spend a ton of money to display my beloved vintage collection with museum quality, there has never been a question in my mind that insurance is an absolute necessity. In particular, before I insured my collection I often had a nightmare about my basement (where I house my collection) flooding up to neck high, and everything being forever ruined. I am sure many of us strange and illogical collectors have had some version of this nightmare. In fact, nightmares of this sort have happened to several fellow collectors: http://forum.rebelscum.com/t959320/#post16097758; http://forum.rebelscum.com/t910038/; http://forum.rebelscum.com/t1019923/; http://forum.rebelscum.com/t1016363/. Unfortunately, many other similar horror stories of damaged, stolen, and lost collectibles likely have occurred within our community. The threat is remote, but it's real.

Of course, anyone would be devastated if this happened. And insurance proceeds could never replace the years spent building the collection, the many stories that are behind numerous pieces, or one-off or other rare items that may exist in one's collection. But the question every collector needs to ask himself or herself is: In that doomsday scenario, would you rather lose everything and have nothing to show for it or would rather lose everything and at least receive payment in the full amount of the current market value of your collection thereby in a sense numbing the pain of the loss, even if just slightly? In that sense, I believe that even reasonable people that aren't neurotic lawyers like myself would agree that the benefit of insurance to cover one's collection clearly outweighs the relatively low cost to procure it.

With that as the backdrop, I did some research on the various options available to collectors to insure our collections. Since I am based in the U.S., the primary focus of this article is the following options available in the U.S.: (1) general "contents" coverage under a homeowners ("HO") policy; (2) an additional "personal articles" endorsement to the HO policy; (3) a stand-alone insurance policy through Collectibles Insurance ("CI"); and (4) a stand-alone policy through AXA Art / MiniCo Insurance Agency ("MiniCo"). I also briefly discuss some of the options available outside the U.S. My findings focus on the following characteristics of each offering, among others: (1) range of protection; (2) exclusions; (3) annual premium cost – I used round numbers and asked for the cost of coverage of a $10,000 collection and a $100,000 collection; (4) deductible requirement; (5) need to inventory / appraise collection; (6) claims process; and (7) any other noteworthy items. For your convenience, I made a quick reference chart to clearly demonstrate the differences and similarities of each option, and describe each in greater detail below the chart.

Coverage Options under Homeowners Policies

Many collectors protect the value of their collections under a HO policy of insurance with some of the more recognizable names in the industry. I personally have a HO policy through State Farm, so I focused on the options for collectibles coverage available through that provider instead of conducting a survey of all of the major providers of HO insurance on the theory that the deviation in coverage among the various providers won't be earth shattering, although the cost could differ somewhat. One can cover his or her collectibles under the general "contents" (i.e., all of the contents of your home, not just your Star Wars collection) coverage or under a separate "personal articles" endorsement to the HO policy. The personal articles policy is specifically for items such as valuable jewelry, antiques, fine art, collectibles, etc. that may provide broader coverage than a general contents HO policy. Individual items are typically insured up to a specific amount or large collections of certain items (wine collections, baseball card collections, perhaps vintage Star Wars collections) may be insured on a blanket basis. The personal articles policy may be used to insure just a few items or an entire collection. Here are the basics:

(1) Protection. Burglary, theft, and fire are covered, but "mysterious disappearance" (i.e., an explained loss not involving theft), accidental breakage, items in transit and certain other losses protected by CI's policies (as discussed below) are not covered under contents coverage. Acts of terrorism and natural disasters are also not covered. Floods are not covered – except in the case of back up of sewers and drains – unless a separate flood policy is procured. Personal articles coverage augments contents coverage by adding mysterious disappearance coverage.

(2) Notable exclusions. Not much else to mention other than that identified in the above chart.

(3) Premium Cost.

a. Contents Coverage. Since all of your possessions in your home would be included along with your Star Wars collection under contents coverage, it is hard to make an apples to apples comparison against the cost of insuring only your Star Wars collection through a stand-alone policy by a provider such as CI. Take me for instance. I already have contents coverage for everything else in my home, so ostensibly my collection is already covered. In any event, to try and get an apples to apples comparison, I asked my State Farm representative the additional cost it would take to add another $10,000 and $100,000 to my general contents coverage to cover hypothetical collections of that size. That additional cost would be a mere $6 and $60, respectively. That seems small, but in the interest of full disclosure, I have $450,000 in "dwelling coverage," $335,000 of which is all contents (as a neurotic lawyer, I always over insure), so I have already absorbed the real cost of HO insurance, so it's no surprise the cost of these additional coverage amounts is low. For someone with less insurance coverage in place before adding these amounts (i.e., someone not as neurotic as yours truly), the incremental cost of adding these amounts might be a bit higher, but I wouldn't think significantly more.

b. Personal articles. For separate personal articles coverage for collections worth $10,000 and $100,000, the additional annual premium through State Farm on top of my current contents coverage would be $165 and $1,650, respectively.

(4) Deductible. Under the contents coverage, the deductible on a $335,000 policy would be $2,238. For a personal articles policy, there is no deductible in the event of a loss.

(5) Inventory / Appraisal Requirement. For any type of coverage under a HO policy – contents or personal articles – a detailed schedule would be required for items such as vintage Star Wars collectibles and an objective valuation of those items (State Farm suggests but does not require a third party appraisal) is also required in advance of coverage. Pictures of each item are also suggested by HO insurers such as State Farm. If the items have increased in value over time, that objective valuation needs to be refreshed in order to increase the coverage.

(6) Claims Process. A claims adjuster that likely is not familiar with Star Wars collectibles will review claims and ask for any documentation the insured has with respect to value – purchase receipts, third party appraisals, pictures of the collection, inventory list, etc. The claims adjuster will review the materials and ultimately negotiate the agreed value with the insured. Given most claims adjusters' lack of familiarity with vintage action figure collectibles, there is a significant risk that without ironclad proof of the value of the item the claim payment will provide the collector only with enough money to replace, for example, a 12 back Vader with a Vader on a new The Force Awakens card as the "replacement" piece. In addition, the claims process could take months or longer as the adjusters are dealing with claims or insureds that have lost homes, etc. and would likely, in the claims adjusters' view, take priority to someone who lost their "dolls."

If you look back at old threads in the various forums that exist for vintage Star Wars collectors, you will find more often than not folks endorsing Collectibles Insurance ("CI") as the must have provider of coverage. I should also note that I also cover my own collection through CI. As shown on their website, CI was founded by a stamp collector, and is run by collectors of various types of collectibles. Stated simply, they understand collectors and their collectibles, and the way they run the business reflects that:

(1) Protection. CI's policies cover many of the typical "losses" that a HO policy of insurance typically will cover, such as burglary, fire, etc. Importantly, however, it covers many categories of loss that neither "contents" coverage under a HO policy nor a "personal articles" endorsement to a HO policy (both of these concepts are discussed below) cover, including accidental breakage, flood regardless of the cause (with some exceptions for folks living in certain flood zones), earthquakes, and loss or damage in the mail. CI covers collections with an aggregate value of up to $1 million.

(2) Notable exclusions. Not much else to mention other than that identified in the above chart.

(3) Premium Cost. Annual premium for collections valued at $10,000 and $100,000, respectively, as of September 2015: $67.50 and $463.45.

(4) Deductible. No deductible in the event of a loss. CI also offers insurance coverage to toy dealers, which includes a $200 deductible in the event of a loss. This article, however, focuses on coverage available to collectors, so it intentionally omits a discussion of the dealer policies available.

(5) Inventory / Appraisal Requirement. Along with its reasonable cost and lack of deductible, this is where CI really caters to the collector. Unlike HO insurance, CI does not require an inventory or an appraisal of most items in order to procure coverage at the outset. The coverage is "blanket coverage" of the entire value of your collection, without requiring separate scheduling of each item except those valued over $5,000 apiece. Only those high value items need to be disclosed in advance and separately scheduled. Still, as discussed below, keeping an inventory in advance may be helpful if you have to make a claim in the event of a loss.

(6) Claims Process. In the event of a loss, the claims process is relatively simple. As described above, no third party appraisal of your collection is required. Instead, you would submit a detailed inventory of your collection – piece by piece, with your own view of value. Keep in mind, aggregate coverage will be limited by the aggregate amount listed on your policy, which you may choose to have automatically increase over time if you choose their "inflation coverage" (described in point (6) below). CI will then talk to experts in vintage Star Wars collectibles to audit the values you provided in case, for example, you listed a loose Lobot with a value of $5,000 (when we all know loose Lobots go for only $3-4,000...). The process is relatively quick – a few weeks in the event of smaller loss of a few thousand dollars or less; a few months in the event of a large loss of tens of thousands of dollars or more – due in large part to CI's general understanding of the collectibles markets.

(7) Other Noteworthy Items.

a. CI doesn't underwrite its policies. Instead, the coverage is underwritten by a company rated "A" by A.M. Best – the leading rating agency for the entire insurance industry. CI's site doesn't disclose the identity of that underwriter.

b. Since collections tend to grow, you can adjust your policy anytime within the year. CI will simply bill you for the additional premium for an increase in coverage or, if there are several months or more left in the policy year, refund you the difference in premium for any reduction in coverage due to sale, etc.

c. If you choose the "automatic monthly increase" option for new acquisitions, appreciation in value of your existing collection, etc., CI will apply an automatic monthly increase of 1% in coverage, up to a maximum of $1 million.

d. As discussed above, CI offers coverage for dealers, which is beyond the scope of this article.

e. CI provides coverage for loss or damage of collectibles in transit at the following levels:

When I was researching insurance options, I found MiniCo. I will admit that I had never heard of MiniCo before and don't know any vintage Star Wars collector that uses them, but the more I peeled back the onion, the more I liked what I saw. MiniCo was founded in 1974 as a provider of specialty insurance products and publications for the self-storage industry. Today, the company is a program administrator offering multiple specialty property and casualty insurance products for a variety of unique industries and exposures. MiniCo's collectible insurance is offered in partnership with AXA ART Insurance Corporation, a U.S. subsidiary operating as part of the only globally operating specialty art and collectibles insurance company offering tailor-made coverage solutions for private and corporate collections, museums, galleries, conservators, artists and historic properties. Below is a brief overview of what MiniCo's policies provide:

(1) Protection. MiniCo's policies cover essentially the same losses as CI, including loss in transit, but unlike CI, MiniCo also covers mysterious disappearance or unexplained loss. Like CI, they cover collections with an aggregate value of up to $1 million.

(2) Notable exclusions. Not much else to mention other than that identified in the above chart.

(3) Premium Cost. Annual premium for collections valued at $10,000 and $100,000, respectively, as of September 2015: $75 and $324. It is just slight higher than CI for the $10,000 policy because it has a $75 minimum annual premium, but it is about $140 less per year on the $100,000 policy.

(4) Deductible. No deductible in the event of a loss.

(5) Inventory / Appraisal Requirement. Like CI, MiniCo does not require an inventory or an appraisal of most items. Instead, they provide "blanket coverage" of the entire value of your collection, without separate scheduling of each item except those valued over $5,000 apiece just like CI.

(6) Claims Process. In the event of a loss, the claims process described to me by one of MiniCo's agents seems somewhat of a hybrid between that under a HO policy and under CI. MiniCo will require an inventory of the items lost or damaged, along with an objective valuation of each item's current market value – purchase receipts, third party appraisal, ending auction prices on eBay or otherwise for similar items, etc. The onus of proof of value in the event of a loss is on the insured, and the claims adjusters employed by MiniCo and AXA, while they are generally familiar with most types of collectibles, may or may not be familiar with vintage Star Wars collectibles.

(7) Other Noteworthy Items. Provides coverage on items lost or damaged in transit, and doesn't specify any carrier (e.g., UPS, Fed Ex, etc.) that must be employed to ensure coverage; they cover them all. However, coverage is included as to any item you have purchased that is in transit to you; it doesn't include items you have sold out of your collection that are headed to someone else.

Some Options Available Outside the U.S.

Although this article is written from the standpoint of a U.S. collector, I surveyed the landscape a bit with respect to my fellow collectors outside the U.S., and have the following to provide:

-The best of the non-U.S. options out there seems to be Collect & Protect ("CP") in the U.K. CP's website is http://www.collectandprotect.com. CP appears to also provide coverage in the U.S., but I called the number listed on the website for its U.S. office and it is no longer connected to CP, so I can't confirm availability in the U.S. Here are some of the highlights of what I learned above the coverage available in the U.K.:

• CP is underwritten by a panel of specialist insurers, including Lloyd's of London

• Anecdotally, I know two collectors that have insured their collections with CP. The annual premiums on those collections valued at £25,000 and £40,000 were £100 and £150, respectively.

• As with CI and MiniCo, CP provides blanket coverage and doesn't require an inventory or appraisal in advance of coverage, although it requires items to be scheduled if they are worth more than £2,500.

• A collector friend was told that in the case of a loss, coverage would be for the current fair market value of the items as of the time of loss up to the aggregate coverage limit, and that a third party appraisal would not be required. Instead, CP – who appears to have good knowledge of collectibles' markets – would "work with" the insured.

- In Canada, there really is no stand-alone insurance option, but most insurance companies will allow you to schedule your collection under a HO policy without an appraisal for collections valued at less than $10,000. Nevertheless, some insurers require an appraisal in advance by a certified source even for collections worth less than $10,000, and most require it for collections worth more than $10,000 in which case the collector will also need to purchase additional riders to the policy, which will of course cost more money. For collections worth more than $50,000, the insurer would likely require separate collectibles insurance policies, which most don't offer in the first place. Shane Turgeon, located in Alberta, is a well-known and respected member in our community who is one of only two people certified to appraise toys in Canada for scheduling under HO policies or otherwise. The other person is a toy dealer named Michael Heddle, who runs a store called Bounty Hunter Toys in Hamilton, ON. Joe Fiore, another well-respected member of our community, is working on his certification to be able to offer the service in Southern Canada.

- In Germany, one collector informed me that stand-alone collector policies like the ones offered by CI, MiniCo, and CP exist. They are not endorsements to a HO policy, but in fact stand-alone policies. Apparently, most big insurance companies such as Allianz offer these policies in Germany.

- Other collectors surveyed from other countries including Ireland, Mexico, France, and others simply insure their collections under their HO policies.

Conclusion

Confused by all of this? While I certainly hope not, I know it's a lot to take in. As such, I hope the reference chart helps and I will try to summarize below what it all means. If you want the cheapest option, your best bet is likely to wrap the value of your collection into the HO general contents coverage you likely already will have procured anyway, so the additional cost to add your Star Wars collection is not significant. But the advance requirements under either HO type coverage – detailed inventory and objective, third party appraisal – might be onerous for most collectors, especially those with many pieces in their collections. Further, the claims process will likely be very difficult with or without that information when dealing with a claims adjuster likely unfamiliar with vintage toy collectibles generally and vintage Star Wars collectibles specifically. Certainly, the generally higher cost of personal articles coverage makes very little sense to me when compared with the relative affordability of the stand-alone options available.

As to the stand-alone options out there, while I am really intrigued by MiniCo and will certainly get a quote from them next year when it is time to renew my CI policy, my research confirmed to me that CI still is the best available option out there. CI and MiniCo have many of the same benefits as compared to the HO options, but what I believe separates CI is the ease of the claims process, the ease in changing the policy during the policy year, and the coverage of items both sold and bought while in transit.

At the end of the day, whether your collectibles insurance policy requires you to do so in advance or not, I certainly recommend keeping a detailed inventory of everything in your collection, including a current statement of fair market value for each piece individually and your whole collection in the aggregate. If you have items graded by Collectible Grading Authority, Inc. (the parent company to Action Figure Authority (AFA)), I would also recommend including the serial numbers for those items in your inventory. Anecdotally, I am aware that in the past items stolen from collectors have been identified when subsequently sold on eBay or elsewhere by the AFA serial numbers. Finally, keep pictures of your collection handy. It's not just fun to share those pictures with your fellow collectors; those pictures may also be useful in the event of tragedy.

If you have any questions about any of the above, or would like my advice in choosing the option that best fits your budget, your risk tolerance level, and your collection, feel free to contact me on Facebook or email me at rossbarr@gmail.com.